Both ETF and mutual fund wraps provide investors with unique benefits. However, the ETF wrap has several advantages over the mutual fund wrap that makes it desirable for investors. Here are some of the advantages of ETF wraps over mutual fund wraps.

ETF Wrap

An ETF wrap is a portfolio of ETF holdings that is constructed with the help of a financial advisor. Usually, an investor will sit down with a financial advisor and decide what ETFs to include in their portfolio. This will create a balanced asset allocation and a diversified portfolio at the same time.

Greater Trading Flexibility

One of the biggest advantages of the ETF wrap is that it has greater trading flexibility. The term ETF stands for exchange traded fund, which means that you can trade these securities on the stock exchange anytime that it is open. With mutual funds, this is not the case. You have to put in your order and then it will be processed at the end of the trading day. Being able to trade ETF’s on the exchange makes it much more simple and flexible for investors.

Tax Efficiency

Another advantage of going with ETF wraps is that ETF’s are more tax efficient than mutual funds. Most ETF’s are passively managed, which means that the managers do not buy and sell a lot of securities within the ETF portfolio. With mutual funds, many of them are actively managed and fund managers will buy and sell stocks and bonds frequently. Because of the buying and selling, capital gains and losses are created. For investors, this means that you may have to pay capital gains taxes. With ETF, you are not going to have to worry about capital gains taxes as often as you would with mutual funds.

Untainted by Scandals

The mutual fund industry has been tainted by scandals over the years. As an investor, this could potentially make you skeptical about getting involved with them. For example, some of the after hours trading scandals with mutual funds made it possible for institutional investors to take advantage of individual traders. So far, the ETF industry has not been tainted by scandals as the mutual fund industry has. This makes it a more desirable investment vehicle for many investors.

Shorter Track Record

Even though investing in an ETF wrap can be desirable, it does have a few potential disadvantages. For example, most ETF’s do not have as long of a track record as mutual funds do. Mutual funds have been around for many years and you can see exactly how they have performed over the long-term. Being able to look at the performance of an investment gives you a major advantage when it comes to choosing where you put your money.

Specialize

Another potential disadvantage of ETF is that they tend to specialize in a particular sector or industry. This may not give you a broad enough investment to take advantage of movements in the market. If you chose the wrong sector to invest in, it can cost you money both in the long and short term.

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